Topic: Just finished "When Genius Failed" about Long-Term Capital Management in the 1990's.
Posted by teapots.nli
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This will be very old news to redboarders but I didn't pay attention to such things at the time and just heard about this.  It was a humungous Wall Street "quant" hedge fund that tried to apply physical theories to finance.  It seemed to work for a couple of years -- they were making over 50% returns.  It all went bust of course when the world decided not to follow their computer models, something they had convinced Wall Street could never happen.  Boy did it happen.  The remarkable thing about Long Term is how leveraged they were -- about 100:1 at the end.  $200m in cash and 1.32TRILLION in derivative contracts.

Things I learned:
- Wall Street didn't learn fuck all.  Basically the same thing happened 10 years later but in the mortgage markets
- I had no idea how informal high finance is.  Often in the book they just call Bear Stearns or Buffet or Soros and ask for a couple billion.
- The academic eggheads behind this theory were all Canadians :lol:  NEVER TRUST CANADIANS THEY ACT ALL WISE BUT DONT KNOW SHIT
- There are no insider trading rules for bonds.  Even Federal Reserve bankers were personally investing in the fund and there is no harm no foul.  That is obviously a major conflict of interest and of good governance.
- Capitalism is a fucking shit-show (actually I already knew this part)

It's a very fun read because you know how it ends.  It is a lot like Herodotus -- it starts by showing the incredible hubris of these men.  You know the comeuppance from the Gods is coming hard and fast. :hard:


Posted by .
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Not surprised to see us ice pirates overly involved in this shit... Canada's 1% is far more opaque and anonymous than America's.­

Canadians falsely interpret this as having a better system because they never heard about anything negative pertaining to lawsuits and prosecutions because the courts make sure they don't happen.


Posted by .
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teapots.nli said:
- The academic eggheads behind this theory were all Canadians :lol:  NEVER TRUST CANADIANS THEY ACT ALL WISE BUT DONT KNOW SHIT

Alex Trebek isn't just a game show host; he's a deep-state PSY-OP.


Posted by teapots.nli
Unregistered


. said: Not surprised to see us ice pirates overly involved in this shit... Canada's 1% is far more opaque and anonymous than America's.­

Canadians falsely interpret this as having a better system because they never heard about anything negative pertaining to lawsuits and prosecutions because the courts make sure they don't happen.

These guys were from Canada but very much part of US Academia (Harvard, MIT) and they worked on Wall Street.  They were very much Americans working in America.

But they brought that old Bay street family compact Canadian smugness, superiority, and certainty that you allude to with them.  Wall Street ate it up.  One of the points in the book was that at the time most traders didn't even finish high school -- they were savants and hustlers.  The Canadians had PhDs from Ivy League schools.  they seemed like princes.


Posted by .
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So it's all Canada's fault, eh? :hmmm:


Posted by teapots.nli
Unregistered


. said: So it's all Canada's fault, eh? :hmmm:

One thing the book makes clear is that these were not thieves.  Their mistakes were honest ones and they took care to operate within the law.  This is not the story of Enron by any means and all of these people remained in good standing on Wall Street.  They were not grifters they were just wrong.

As the book makes clear the blame lies not on men trying to get rich on Wall Street, but on Alan Greenspan for turning a willfully blind eye not doing his duty.


Posted by .
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I lost my job at the time because of these snow jews.  Took a while to shake out but they blew up my firmb.


Posted by teapots.nli
Unregistered


. said: I lost my job at the time because of these snow jews.  Took a while to shake out but they blew up my firmb.


I'M NOT YOUR BUDDY, GUY.  

:jew:


Posted by .
Unregistered


teapots.nli said:
. said: Not surprised to see us ice pirates overly involved in this shit... Canada's 1% is far more opaque and anonymous than America's.­

Canadians falsely interpret this as having a better system because they never heard about anything negative pertaining to lawsuits and prosecutions because the courts make sure they don't happen.

These guys were from Canada but very much part of US Academia (Harvard, MIT) and they worked on Wall Street.  They were very much Americans working in America.

But they brought that old Bay street family compact Canadian smugness, superiority, and certainty that you allude to with them.  Wall Street ate it up.  One of the points in the book was that at the time most traders didn't even finish high school -- they were savants and hustlers.  The Canadians had PhDs from Ivy League schools.  they seemed like princes.

­

The worst of both worlds.

The other day I mentioned the family compact system to a fellow :beaver: and they thought I was talking about cars. In terms if history and education, its like it never happened :lol:


Posted by .
Unregistered


Nasim Taleb (who wrote The Black Swan) has some good insights about these guys... he made a lot of money betting against them.

In the summer of 1997, Taleb predicted that hedge finds like Long-Term Capital Management were headed for trouble, because they did not understand this notion of fat tails. Just a year later, L.T.C.M. sold an extraordinary number of longdated indexed options, because its computer models told it that the markets ought to be calming down. And what happened? The Russian government defaulted on its bonds; the markets went crazy; and in a matter of weeks L.T.C.M. was finished. Mark Spitznagel, Taleb’s head trader, says that he recently heard one of the former top executives of L.T.C.M. give a lecture in which he defended the gamble that the fund had made. “What he said was ‘Look, when I drive home every night in the fall I see all these leaves scattered around the base of the trees,’“ Spitznagel recounts. “‘There is a statistical distribution that governs the way they fall, and I can be pretty accurate in figuring out what that distribution is going to be. But one day I came home and the leaves were in little piles. Does that falsify my theory that there are statistical rules governing how leaves fall? No. It was a man-made event.’“ In other words, the Russians, by defaulting on their bonds, did something that they were not supposed to do, a once-in-a-lifetime, rule-breaking event. But this, to Taleb, is just the point: in the markets, unlike in the physical universe, the rules of the game can be changed. Central banks can decide to default on government-backed securities…


Posted by teapots.nli
Unregistered


^  Thanks I read Black Swan but totally missed that.  

Nasim Taleb is the real thing -- an actual genius not a fake Canadian genius :lol:


Posted by .
Unregistered


I remember those days.

I had an office overlooking the Hudson and dated a very cute Japanese girl who I fucked in the office once.

Much better times than today.  Can we get a do-over, please?


Posted by .
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Greed works short term. The secret is knowing when to leave the table.


Posted by teapots.nli
Unregistered


. said: Greed works short term. The secret is knowing when to leave the table.

These guys were so arrogant and greedy that they forced investors OUT of their fund when it was doing well.  They voluntarily gave back 2.7 billion dollars that they would desperately need one year later.

Pride goeth before the fall
- Rex Reason


Posted by .
Unregistered


LTCM wasn't corrupt.

:lol:


Posted by teapots.nli
Unregistered


. said: LTCM wasn't corrupt.

:lol:

The whole system was corrupt but LTCM never broke the law.  there was never any implication of that.  They made one dubious trade toward the end just to get operating capital but even that they fully disclosed.  The Fed said they were the first fund to come to them BEFORE they were completely fucked.

So by Wall Street standards these were not corrupt.  They followed the law and then some.  

Now a federal reserve banker becoming a partner in the fund and sharing inside bond knowledge.  Also legal but hard to think of greater financial corruption.


Posted by .
Unregistered


This is what is wrong.

The rich get richer, the poor get screwed.

At some time they will push too far. The results are always ugly and bad. We need a rational government to enforce law, order and justice


Posted by .
Unregistered


Thanks for the recommendation.


Posted by teapots.nli
Unregistered


. said: Thanks for the recommendation.

:thumbup:  It was a NYT best-seller in paperback so every used book store has tons of $2 copies.



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